Positive Macro Conditions To Drive SG Banks’ Performance

According to PM Lee, Singapore’s economy is expected to grow at close to 3.0%. This result, if achieved, would be one of the best Singapore’s economy will register following the global financial crisis.

With macro conditions continuing to improve, positive sentiments in domestic markets have built up. Capital markets and property markets appear to be revitalised.

The rejuvenated economy is a positive sign for the banking sector, which is usually the first to experience any turnaround in sentiments.

OCBC

3Q17 was a well-rounded quarter for OCBC where all its business units were firing. It demonstrated OCBC’s holistic franchise in its banking, insurance and wealth management platforms.

OCBC’s 3Q17 net profit of $1.057 billion beat consensus expectations due to better-than-expected performance from life insurance arm, Great Eastern.

CIMB Research notes that these credits would have otherwise deteriorated in the quarters ahead.

With the “cleanest” book among peers, healthy business momentum and most likely to benefit from rising rates, CIMB Research recommends adding DBS with a target price of $25.

CIMB Research: DBS Group Holdings Limited (SGX: D05) – BUY; $25.00

UOB

UOB has been lagging its peers in terms of year-to-date share price performance. Moving forward, DBS Vickers Research cites three reasons why there will be a turn of events for UOB.

1. Proxy for property market recovery

Firstly, the property market is recovering. The recovery bodes well for UOB as the market perceives it to be a proxy for the bank’s share price movement.

This is because UOB has the largest proportion of property-related loans compared to DBS and OCBC.

The recovery of Singapore’s property market will lead to more home loans, which UOB should capture a larger share than its peers.

DBS Vickers Research forecasts loan growth improvement to come as early as 3Q17 earnings.

2. Imminent NIM improvement

Secondly, the imminent net interest margin (NIM) improvement should buoy UOB’s share price. SIBOR/SOR has finally edged up more visibly over the quarter.

DBS Vickers Research expects repricing of home loans to take effect as early as 4Q17 earnings, given that the repricing effect typically takes approximately up to 90 days. NIM improvement could even spill over into FY18.

3. NPLs easing

Lastly, DBS Vickers Research believes that the quantum of new non-performing loans (NPLs) has eased, albeit lingering asset quality concerns.

DBS Vickers Research notes that the end to asset quality woes should warrant a re-rating, which could come in FY18.